The German economy is sinking far deeper into recession than previously thought. Recent revisions to the national accounts by the Federal Statistical Office paint a dramatic picture.

Quietly and without fanfare, the Federal Statistical Office released new data this week on Germany’s economic output. And, as expected, the figures were revised downward. Instead of shrinking by 0.2% in 2023 as initially reported, Germany’s GDP actually contracted by 0.9%. The outlook for 2024 has also worsened: a projected contraction of 0.5% instead of the previously assumed stagnation.

Three Years of Ongoing Recession

Anyone who still clung to the illusion of stability must now face reality. Germany is stuck deep in its third consecutive year of recession—and there's no way out in sight. The downturn is deeper than previously assumed, with far-reaching consequences that politicians and media had downplayed.

It’s not unusual for macroeconomic data—such as GDP, unemployment, or inflation—to be revised retroactively. These figures are highly aggregated and often based on estimates and projections. It would therefore be unfair to accuse former Economy Minister Robert Habeck (Green Party) of falsifying these numbers. For one, the Ministry of Economic Affairs isn’t the only institution massaging data to suit political interests.

Just think of Germany’s labor market figures, which have been grossly distorted by early retirement schemes, job creation programs, and other manipulations—rendering them practically meaningless.

Central Planning and Climate Ideology

Still, there is no question that Habeck’s policy approach has inflicted severe damage. His economic policy strictly followed the Green Deal line, aiming to transform fundamental pillars of the German and European economy.

At the heart of this centrally planned transformation was the energy sector—once the engine of German industry. The explosion in energy prices is the ultimate proof of the failed energy transition—a disaster that will remain tied to Habeck’s name until Europe returns to a framework of market-based economic order.

Clinging to economic dirigisme is a fatal error. It reflects a profound lack of competence. Economic growth happens when unconsumed resources are invested in the kind of capital stock that creates goods and services demanded by consumers in a free market.

Artificial state demand and credit-fueled stimulus programs, by contrast, are nothing more than centrally planned misallocations of scarce resources—diverted from where they are truly needed by businesses and consumers.

That’s the basic economic logic politicians like Habeck, central planners like Friedrich Merz, and bureaucrats like Ursula von der Leyen are unable to grasp.

The GDP Illusion

The most fundamental distortion in economic data stems from the way government spending is included in GDP. The state does not produce market-demanded goods or services. On the contrary—it consumes resources created by the private sector, and at best adds more demand via deficit spending.

To get a real sense of economic growth, one must focus on private sector investment. This is the best indicator of whether an economy is growing, stagnating, or shrinking. For Germany, this metric confirms it has been stuck in recession for quite some time. Each year, the country loses over €60 billion in net direct investment. In 2023, capital flight reached a staggering €94 billion.

The economy is voting with its feet. Confidence in German policymaking has long since evaporated.

The situation is truly dire—and becomes even clearer when you factor in Germany’s high government spending ratio of 50%. With net new public debt exceeding 3% of GDP in 2023, the private sector must have contracted by nearly 5% to result in an overall GDP decline of 0.9%. That’s not a recession—that’s a depression.

Free Fall Without Safety Nets

Daily reports of factory shutdowns, mass layoffs, and capital relocations confirm the picture: Germany’s private economy is in free fall.

Overregulation and crushing tax burdens—driven by the fanatical climate agenda from Brussels and Berlin—have triggered a domino effect in the economy. Even drastic reform efforts may not be enough to stop it now. The newly initiated debate by Finance Minister Lars Klingbeil about raising taxes fits perfectly into Brussels’ agenda. Here, too, new corporate taxes are being floated to finance the EU’s sprawling bureaucracy. Europe is becoming hostile territory for investors and entrepreneurs.

It speaks volumes about how out of touch policymakers have become that even pro-business factions within the ruling coalition—like the CDU Economic Council or the SPD’s Seeheim Circle—have largely ignored the revised recession data. This is where political irresponsibility comes into full view.

It’s not the statistical quirks of GDP that should alarm us. It’s the fact that since 2019—pre-lockdowns—Germany has added some 700,000 new unemployed people, despite the government creating hundreds of thousands of new public-sector jobs.

You can suppress reality for a while. But eventually, it hits with full force. That’s exactly where Germany finds itself now.

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Thomas Kolbe, born in 1978 in Neuss/ Germany, is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination. Follow him on Twitter/X: https://x.com/ThomKolbe.